A Credit Card Conspiracy? Class Action Suit Targets Swipe Fees

A class action lawsuit in British Columbia claims Visa, MasterCard and the major banks are conspiring to keep transaction costs high for retailers. Such costs are swipe fees paid by retailers to credit card companies and banks every time a shopper uses a credit card to make a purchase. The fees start at 1.8 per cent but can be as high as 4 per cent for some premium cards according the Canadian Federation of Independent Businesses (CFIB).

Are Credit Card Lenders Breaking the Law?

In official documents filed to the Supreme Court of British Columbia by a furniture retailer in Vancouver, it’s stated 12 separate financial institutions, including Visa, MasterCard and Canada’s big banks, “unlawfully interfered with the economic interests of merchants.” It adds “…the defendants have breached various provisions of the Competition Act,” and have “engaged in civil conspiracies, and unlawfully interfered with the economic interests of the proposed class members.” In other words, the suit accuses credit companies are working together to keep fees high across the board.

The Second Attack on Fees

This isn’t the first time credit card companies have been taken to task on their transaction fee structure. Previously, the Competition Bureau of Canada brought a case to the Tribunal stating the fees were anti-competitive.

While that case was ultimately dismissed, retailers aren’t finished fighting against the fees, and hope to shed new light on the ongoing issue with this class action lawsuit. The independent retailer leading the charge says transaction fees continue to hurt profits and drive prices up unnecessarily. Every year in Canada credit card transaction fees total $5 billion.

What Independent Retailers Want

CFIB president Dan Kelly says more transparency is needed around credit card fees, and that the lack of information means shoppers are unaware their credit card is costing retailers money.

“Consumers don’t often realize that when they use their cards that the merchant also pays a massive fee,” say Kelly, adding that while the latest class action lawsuit is a David and Goliath situation, he is glad the small merchants continue to stand up to the credit companies and banks.

Kelly also calls for retailers to have the right to surcharge consumers when they use a premium credit card. American Express, MasterCard World Elite and Infinite Visa Privilege card are the highest cost credit card out there, according to Kelly, merchants can pay up to 4 per cent per transaction.

What Consumer Groups Think

Consumers groups supported the Tribunal’s decision last year to dismiss the Competition Bureau case of fees being anti-competitive but Bruce Cran, president of the Consumer Association of Canada, says shoppers likely won’t embrace changes for retailers. “Most consumers like the set up the way it is,” he says. “In fact the large majority of people say they wouldn’t use a credit card if they didn’t have rewards points attached to it.”

Cran points out for retailers using cash is inefficient and will cost them more in the long run. He admits siding with credit companies is not what you would expect of a consumer advocacy group, but in this case he does, as the fees should be paid by the retailers and not downloaded to the consumers. He adds, “We get a lot things when we use our credit cards, we are protected against fraud, we get an extra warranty and protection non delivery.” He adds consumers should also be aware of the record amount of debt we are carrying and how credit cards can contribute to our debt burden when not paid in full.

Would YOU be willing to pay a small surcharge on purposes in exchange for using a premium credit card?

Great read. Thanks. Price of gas and cost of insurance is also anti competive, cost of some goods is also the same across the retailer board..ie apple products et al… Lcbo and the cost of alcohol is also a big monopoly, Canada is one giant monopoly support system….

I agree that the retailers should not have to pay when the consumer gets all the benefits. The annual fees, interest payments and maybe a small transaction fee should be enough for the credit card companies.

This issue truly is mutli-faceted. While consumers are hard pressed to pay even more at the till, just for their credit card choice, it’s easy to be sympathetic toward small business owners with little control over the fees they must pay. I’m most interested in the precedent that could be set by the outcome of this suit. If it’s successful, it could cause changes in how some premium cards are marketed.